Balfour Beatty ends Carillion merger talks, shares tumble

Construction company terminates merger talks after dispute over Parsons
Brinckerhoff

The company said it would proceed with its own business plan, and would continue to actively progress its search for a group chief executivePhoto: Newscast

By Ashley Armstrong, M&A Reporter

8:07AM BST 31 Jul 2014

Balfour Beatty, the UK’s biggest construction company, has called off £3.05bn merger talks with rival Carillion after just seven days.

The company said on Thursday that it had ended talks after Carillion's "wholly unexpected decision" to only go forward with the merger if Balfour did not sell Parsons Brinckerhoff, its US project management business.

It is understood that Carillion voiced its change of heart yesterday afternoon and a decision by Balfour's board to end negotiations was made last night.

"This change is contrary to the basis upon which the Balfour Beatty board agreed to engage in preliminary discussions," the company said in a statement.

"It is also contrary to the joint announcement released on 24 July 2014 which confirmed that the sale of Parsons Brinckerhoff would be unaffected by the merger discussions and also a presentation to Balfour Beatty's board by Carillion on 28 July 2014. This change in the proposed terms is not acceptable to the board of Balfour Beatty."

Parsons Brinckerhoff was put up for sale in May. Balfour had bought the business for £380m in 2009 with the aim of creating a one-stop shop for construction and design.

However, Balfour realised the division had not provided any real competitive advantage because its construction clients preferred to take independent advice on construction projects.

Balfour said it would proceed with its own business plan, and would continue to actively progress its search for a group chief executive.

Carillion said that it was "surprised" by Balfour's reaction. The company said in a statement that "for the combination to satisfy Carillion's requirements, it would be essential to retain the staility and dependability of Parson's Brinckerhof's earnings".

The group said that it still believed "in the powerful strategic rationale of a combination". The two companies are still in an offer period and have to make a firm bid or walk away by August 21.

It is thought that Balfour was keen to sell-off Parsons Brinckerhoff to provide a dowry for the combined business, which would have boosted the financial strength of the merged entity. However, Carillion is said to have been keen to keep the division which is a cash cow.

Speculation is now mounting that a weakened Balfour could now be targeted by another suitor, or Carillion could go hostile with a takeover bid, rather than a friendly merger.

It is understood that Balfour's bankers at Goldman Sachs had approached other construction groups before beginning talks with Carilion.

The company issued its fourth profit warning in two years earlier this month after admitting that a further worsening in the trading performance of its mechanical and electrical engineering division would mean its profits were £75m lower.